A Sweet Midwest Bank Recovery Play: Street Whispers

The analyst also said that First Midwest's "capital levels remained solid," with a tangible common equity ratio of 8.9%. The company reported a June 30 tangible book value of $9.30 a share, and Rodis said that "if FMBI does choose to do some sort of bulk loan sale we believe the ultimate hit to tangible book value (TBV) will be manageable in the 5% area," based on the assumption that the company "sells $200- 300 million in non-performing loans (which is ~ half the current level of non-accruals + potential problem loans) and takes an additional hit of $0.10-0.20 on the dollar ($1.00)." Rodis believes "the after-tax impact on TBV would be ~ $0.25-0.50 per share," on a bulk loan sale of roughly $250 million.

Rodis rates First Midwest "Outperform," with a $12 price target, and estimates the company will report earnings of 45 cents a share for all of 2012,not factoring in a potential loan sale, followed by 2013 EPS of 85 cents. The shares trade for 1.3 times tangible book value and the analyst said "we believe a lot of the bad news is already built into the stock."

First Midwest's shares closed at $11.59, returning 15% year-to-date, following a 12% decline during 2011.

FMBI data by YCharts

Rodis said that "longer term we believe the FMBI franchise remains one of the more attractive Chicago-based banks. And from a fundamental perspective we believe a number of the operational changes that have been made over the past year are starting to take hold and as a result we think things are moving in the right direction."

Interested in more on First Midwest Bancorp? See TheStreet Ratings' report card for this stock.